SD commission suspends Gregory elevator licenses

3/29/2013 2:30 PM
By Associated Press

PIERRE, S.D. (AP) — The South Dakota Public Utilities Commission on Friday suspended the licenses of a financially troubled grain elevator in Gregory, but a commission official said it appears the elevator will be able to pay all farmers who sold grain to it.

Jim Mehlhaff, director of the commission's Grain Warehouse Division, said the Gregory Farmers Elevator has a net worth and assets that should be sufficient to cover what it owes farmers for grain. However, the elevator's financial condition has deteriorated to the point it no longer can operate, he said.

"Obviously what we have today is an elevator that's trying to get their affairs in order basically as they approach the end of the line," Mehlhaff told the commission.

The three-member commission voted unanimously to immediately suspend the elevator's grain buyer and grain warehouse licenses. The licenses will be revoked permanently in 15 days unless the elevator requests a hearing and presents evidence it can continue in operation.

Commissioner Chris Nelson said the license suspensions were necessary to prevent any losses to farmers and give the elevator time to possibly regroup.

Sherman Vomacka, chairman of the elevator's board, took part in the commission hearing by telephone and did not contest the suspension. But he said there's still a chance another cooperative will buy the elevator.

"There is some hope there," Vomacka said.

Mehlhaff said he believes the elevator got into financial trouble because of bad decisions by two former managers. One of those former managers has been charged in court with embezzling more than $17,000 from the elevator, but that is not considered the reason the elevator is in financial trouble.

Mehlhaff said the PUC staff began monitoring the elevator closely in August after a report it had delayed payment to a farmer. The elevator's financial condition improved for a brief time but then began to worsen, he said.

By the end of February, the elevator had lost $89,000 since its fiscal year began last June, Mehlhaff said. Its working capital, or easily accessible cash, also has dropped, he said.

Farmers had sought to raise additional working capital to keep the elevator afloat, but they fell short of raising the $400,000 needed, Mehlhaff said.

"The other day it just became apparent they were not going to be able to raise that additional capital and therefore would not be able to continue as a going concern," Mehlhaff said.

Officials at Friday's hearing said checks issued to several farmers totaling more than $300,000 have not cleared. Vomacka said he holds a $144,000 check.

Mehlhaff said the elevator should be able to make those checks good.

He said the elevator has an $800,000 warehouse bond and a $100,000 grain buyers bond.

"My assessment would be that all the producers should be taken care of, and the bond likely would not even come into play," Mehlhaff said.

Commissioner Gary Hanson asked if the Gregory elevator's problems are an indication that other elevators across the state also might face problems.

"I would say this is not what I would call indicative of the industry in general," Mehlhaff said. "I do not see a weakening of the grain-handling industry in general."